Depressed tourism adds to ballpark's funding woes

By Don Bauder
Copyright 2001 San Diego Union-Tribune
Article date: September 23, 2001
 

Show us the money.

That, in essence, is the challenge to ballpark proponents, particularly in light of recent tragic events that may change tourism and commercial development for some time.

On Monday, the City Council granted a 30-day extension to the memorandum of understanding, the agreement with the Padres to build a downtown ballpark, and the commitment of the team to arrange nearby commercial development.

The memo is not the one that voters approved in November 1998. The mix of ancillary buildings and the proposed tax support for bond debt service have changed significantly. Even before the terrorist attacks further dampened tourism prospects this month, the hotels that had been promised to provide transient occupancy tax (TOT) to service ballpark bonds had not been built and, with one exception, not yet financed.

The planned 1,000-room Campbell shipyard hotel has long been scratched from the picture. Padres majority owner John Moores was initially committed to providing 850 hotel rooms, along with the Campbell and commercial development.

One hotel, the Westin, has been financed and was started, but construction was stopped. The others have not been financed, and neither have the retail and office buildings, but, "we still plan to build the others, assuming the city goes forward and finances the ballpark," says Padres President-in-waiting Bob Vizas.

In the meeting Monday, Councilman Byron Wear said the financing emphasis would shift from TOT to tax increment financing, or real estate taxes from existing buildings or promised new ones, a suggestion that has been made before. Real estate values have risen.

But can tax increment carry the load? "It depends if ancillary building is built," says Scott Barnett, executive director of the San Diego County Taxpayers Association. "TOT growth will be less than anticipated; in the worst case it would stay flat, but in a major depression or recession it could drop."

He says, "All along, the toughest issue on this project has been the short-term cash flow in the first five to 10 years of the deal." That has worsened.

He says the Padres have fulfilled their obligations under the contract, and the city must go through with it unless "there is risk to the city's credit in issuing the bonds."

Critics say the Padres have not fulfilled their obligations and the bond risks are severe enough to hurt the city's credit rating.

"We have to be prepared to scale down significantly the projected TOT," and depressed tourism will also affect future hotel construction, says attorney Michael Aguirre, who was co-campaign director for the project. In the campaign, voters were assured tourists would pay for the project, and tax increment would go to the city, he says.

Some things are positive. Interest rates have come down. At current rates, debt service on the bonds may be $11 million to $12 million a year, rather than the $19 million contemplated earlier.

However, the city will only get $500,000 a year back from the facility, so it is still a sieve that will be studied carefully by bond insurers, who hardly want to be left paying up to $11.5 million a year if the matter gets tied up in court and the council can't authorize yearly payments.

Former City Councilman Bruce Henderson is involved in four suits on appeal. Any one of them, if upheld, would restrict the ability of the council to authorize debt-service payments, he says. "There is a huge risk for bond insurers," he says, and it doesn't come only from lawsuits.

The bond insurers would want assurance of public support for the project, says Henderson, and assurance that there is money to pay off the bonds.

Barnett says that if TOT and tax increment fall short, the money will come from the general fund. All along, critics said that would happen.

On Thursday, Henderson wrote to City Attorney Casey Gwinn, reminding him that the memorandum of understanding clearly states that if revenues are reduced or costs increased, the matter has to go back to voters. And the document does not specify net revenues or costs, says Henderson.

In March 1999, the council gave sufficient assurance that Moores was committed to providing $289 million of commercial development, as well as 1,850 hotel rooms, says Henderson. The retail and office buildings were supposed to be up and throwing off tax revenue early next year, but are nowhere in sight.

"Moores has abandoned that commitment," says Henderson. Vizas denies that, with his contention that the Padres intend to move ahead if they get financing.

Council members are now talking about tax increment from surrounding housing projects, but "housing is outside the (memorandum)," says Henderson. If the city's financing plan violates the document, his clients may file another suit.

Lining up naming rights may be more difficult. Naming rights are institutional advertising -- the kind of promotion that drops precipitously in a recession. Major League Baseball may oppose attempts to name the facility for a gambling casino or an Indian tribe that owns one.

"We have not had active naming-rights discussions until we know that the ballpark will go forward," says Vizas.

The Padres want the city to move first. The city would be extremely ill-advised to sell bonds before the Padres' commitments are completely fulfilled.

Don Bauder's e-mail address is don.bauder@uniontrib.com. His phone number is (619) 293-1523.
 

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